Court ordered inherited IRA ownerhsip change
Client received proceeds from ex-spouse 401k at Raytheon. Children are suing for proceeds. Lower court ruled Federal Law (ERISA) trumps State law and dismissed case. NM Supreme court overturned and returned case to lower court.
If the decedents children win this case, can the IRA be retitled in their names? Complaint asking to re-title inherited assets in name of children.
Permalink Submitted by Jose Morales on Wed, 2016-12-28 23:42
This will be a very interesting case to watch. I’m surprised it’s not already on my radar. Can you post more information so I can read more of the facts and circumstances regarding the case?
Permalink Submitted by Jose Morales on Wed, 2016-12-28 23:52
nevermind, I found the case
Permalink Submitted by Jose Morales on Thu, 2016-12-29 20:50
The ex-spouse was the named beneficiary of the retirement plan upon the death of the account owner. The ex-spouse received the proceeds of that plan. The estate and children brought suit against the ex-spouse to recover the proceeds already received by the ex-spouse. The parties reached a stipulated agreement (details of that agreement were not listed beyond an agreement that ex-spouse agreed that the plan owner would retain full ownership of her retirement benefits). The ex-spouse then moved to have a district court strike the stipulated agreement and dismiss the claim based on a failure by the estate and children to “state a claim under which relief could be granted” (no valid claim was presented). The district court found that the claims to the proceeds were preempted by ERISA and granted both motions. The estate and children are presenting three theories under which they are entitled to the funds: 1) the ex-spouse waived their right to the plan proceeds in the divorce decree 2) New Mexico law states an unaffirmed pre-divorce beneficiary designation is invalid 3) equity justified the creation of a constructive trust because the ex-spouse was not the intended beneficiary of the plan. The appeals court dismissed the notion that no valid claim was presented, noting that the case cited by the ex-spouse had a different set of circumstances than the one before the district court. Specifically, the case involved undistributed plan funds (meaning the funds were still within the plan) whereas the case before the district court involve funds distributed from the plan. With the funds outside of the plan the appeals court is saying that the stipulated agreement may be valid and worth deciding in the lower court. If the arguement in the district court is going to be centered around recovering funds from the ex-spouse as a result of the stipulated agreement then the language of the stipulated agreement will be important. Did the ex-spouse agree to simply hand over the funds to the estate and children voluntarily? If so that wouldn’t change the fact that the ex-spouse was the named beneficiary, and beneficiaries cannot change the beneficiary designation of the plan. So even if the ex-spouse states in the agreement that he recognizes the estate/children as the proper recipients of the funds, that doesn’t make the estate or children the plan beneficiary and would not automatically allow for the children create inherited IRAs for themselves. You can always apply for a written determination from the IRS, laying out the facts and circumstances along with your agrument for why the children should be given the right to have inherited IRAs created on their behalf if the funds are awarded to them.